Are Labor and Materials Sales Subject to Sales Tax?

Since every state has different guidelines, the best suggestion I can make is to use the local state sales tax office as a resource and follow their instructions to the letter.  I am lucky enough to have a state office located in our city so I opened my account in person and asked a lot of questions.

Collecting the correct sales tax can be tricky and the rules are full of pitfalls.  Is labor taxable?  What about materials sales?  If you tell someone that the cost of the job will be $500 is the entire amount subject to sales tax or just the portion that covered the materials?

If your materials and labor are both taxable, your sales tax liability will be MUCH higher.  In my business, labor accounts for about 85% of my total revenue so the stakes are high.

In California, because labor is generally not taxable and materials sales are, you have to be very careful how you quote prices and fill out your invoices.  You must clearly break materials out from labor when quoting the work and while totaling the invoice. If you don’t you might be liable for sales tax on the entire sale.  I always quote labor and materials as separate items.